5) Negotiation - U.S., 1992: victim of intimidation

Compelling event

As executor of a will in South Carolina I arrived from Europe to perform this duty in 1992. To minimize estate taxes, the owner of a business had transferred assets (real estate, investments) to the wife. The only assets left in his name were a small business, and one bank account with $10,000 in it. There was a two-step procedure for the court. Step (1) was to list all liquid assets. Step (2) was to value the business.

The probate judge said there was no statutory requirement that an attorney sign off on the form for Step (1). However in her court, she required it. As competent counsel would be needed for the more complicated business valuation, I looked for a prestigious attorney to sign off on that first form. I wanted to be represented by a prominent legal authority to ensure a smooth relationship with the judge. A pureblood Southerner, she appeared to view me somewhat suspiciously as a New York (carpetbagger) Yankee, and one who did not even live in the U.S. at that.

The gentleman I found was a professor at the state’s leading university. I was given to understand that his credentials were impressive indeed. They included his being an expert on probate who had helped draft statutory amendments, his being the managing partner of one of the leading law firms in the state, and his having served as the chairman of the state’s ethical review committee for the profession. In our meeting I explained the future Step (2) valuation work. I then showed him the completed form and the accompanying bank validation for Step (1). Could he sign it directly, and what would the fee be, please?

He was insulted. Was I impugning his integrity? Did I know who he was? The bank validation would have to be confirmed independently before he signed it. That would be done and the form promptly forwarded to the court. Should that procedure not meet with my satisfaction, I was free to seek counsel elsewhere.

Intimidated, I agreed. After all, how much could the bill be for a 15-minute meeting, a telephone call to the bank, and mailing off the form I had already painstakingly filled out? Perhaps $500 at the most I thought, the price for ensuring a benevolent attitude from the judge. That was necessary, as my serving as executor was subject to her control.

Some six weeks later I have a follow on meeting with the judge. The form for Step (1), listing the liquid assets, in this case the single bank account with $10,000, had been received. The accompanying bill by the signatory attorney had already been approved by the court and the funds dispersed. I asked what the amount of the bill was.

The bill was $9,500. That is not a misprint: $9,500. There was only $500 left in the account.

Lesson learned

When you are dealing with someone who has great power (knows the judge, former chairman of the ethics review committee, managing partner of the law firm, impeccable reputation) who cannot possibly be attacked, exercise great care! At the very least, get a cap on fees in writing.

Furthermore, exercise proper due diligence that your instructions are actually being carried out as you intended. A salutary case in point follows.

Aftermath

I have an aversion to conflict in general and litigation in particular. Lawsuits can take on a life of their own. As they move up the hierarchy of the courts, not only do costs mount, but also increasing amounts of management time are wasted. Ultimately the only sure winners are the opposing attorneys for the contesting parties. (The eminent attorney remarks: "I have never lost a case." "Really", exclaims the new hire, "100% victories in court, astonishing." His eminence replies: "My clients have lost plenty of cases. I said I never had. I have always been paid.")

The awareness of these facts in the U.S., a particularly litigious society, has led to the increasingly widespread use of binding arbitration. (Note that judicial arbitration may very well not be binding.) One popular choice is the American Arbitration Association, which offers dispute resolution services worldwide. A well respected alternative in Germany is offered by the regional chambers of commerce, IHK - Industrie und Handelskammer für München und Oberbayern (i.e. Munich) with the Deutsche Institution für Schiedsgerichtsbarkeit e.V., www.dis-arb.de

Particular care is required in stipulating a binding arbitration clause in the U.S. Its validity (also for an international commercial contract) and requirements vary from state to state. After the $9500 bill for the 15 minute meeting described above, I became more cautious. On another matter, I clearly stipulated that a contract must have a binding arbitration clause. The attorney added it in normal print size at the bottom of the contract. That would have made the clause invalid as defective in form.

At that time in South Carolina, to be enforceable such a clause had to appear at the beginning of the contract, and be introduced with CAPITAL LETTERS. When challenged, the attorney said he was not going to be party to taking bread out of the mouths of fellow attorneys. As a matter of policy, his firm therefore inserted any arbitration clause the client requested at the bottom of the contract in normal print.

Relevance

The moral of this story is to exercise due diligence whenever you deal with outside advisors, your accountants, attorneys, bankers, consultants, and including, of course, your executive coaches.